2015 (4) TMI 1360 - HC - VAT and Sales Tax

Liability to pay the entire tax liability although the petitioner had paid the tax to the selling dealer and claimed input-tax credit - HELD THAT - This Court finds hardly any justification in the submission of the learned Government Advocate, since a direction to pay 25% of the tax liability would amount to double taxation, which is impermissible in law. The petitioner, being a dealer in leather, as per Section 19(1) of the TNVAT Act, for the purchases effected from the local registered dealer, has become eligible to claim and avail ITC. Besides, the vendors, who sold the goods to the petitioner, are also being a registered dealer under the TNVAT Act, having issued tax invoices after collecting the taxes at 5%, the petitioner was rightly under the bonafide belief that the vendors would have paid the taxes collected from them to the Sales Tax Department in Annexure-II of their monthly returns filed for the years 2009-10, 2011-12, 2012-13 and 2013-14. The impugned orders are set aside - All the writ petitions shall stand allowed.

Summary

Issues:
Challenge to impugned order for tax liability payment despite input-tax credit claimed.

Analysis:
The writ petitions challenged the order of the Assistant Commissioner (CT) directing the petitioner to pay the entire tax liability, despite having paid tax to the selling dealer and claiming input-tax credit. The petitioner relied on various judgments of the Madras High Court, including M/s. Althaf Shoes (P) Ltd. and Sri Vinayaga Agencies cases, which emphasized that the revenue should take action against vendors who did not remit tax collected, rather than denying the claim of the assessee. The Court found the impugned orders incorrect and contrary to TNVAT Act and Rules, setting them aside and allowing the writ petitions without costs.

Further Legal Analysis:
The petitioner's counsel highlighted that under Section 19(1) of the TNVAT Act, a purchaser can claim input tax credit for purchases from local registered dealers. The petitioner, a genuine purchaser, believed the vendors had paid the taxes collected to the sales tax department. The Assistant Commissioner was urged to take action against vendors who failed to pay taxes, as passing the impugned order without doing so was improper. The respondent, represented by the Government Advocate, suggested the petitioner pay 25% of the tax liability due to the substantial amount involved. However, the Court rejected this proposal, stating it would lead to double taxation, which is not permissible. The Court reiterated that the petitioner was entitled to claim input tax credit and that action should be taken against vendors who did not remit collected taxes, in line with previous judgments cited.

This comprehensive analysis of the judgment highlights the key issues, arguments presented by both parties, and the Court's reasoning in setting aside the impugned orders and allowing the writ petitions.